Four really awesome, quite left-wing ideas from the Commission of Audit

1. Letting states raise income tax to pay for services.

States have responsibility for things people really care about, like schools. 

The Commission proposes dividing up the ability to levy income taxes between states and the federal government. (States lost this power in WW2). States would start off with a 10 per cent rate, which they could then move up or down. If implemented in Australia, there’s plenty of reasons to believe this would result in higher taxes and higher quality of services. People move house to access better schools all the time. State governments live and die on stories about ambulance waiting times.

Competitive federalism is a classically liberal idea. But these days one could argue the left, broadly defined, has as much claim as anyone to be the custodian of that tradition. Providing the right amount of government services efficiently is as much a left-wing idea now as right.

You give your money to the federal government they will only spend it on fighter jets and diplomats. You give money to state governments, they spend it on schools and hospitals, roads and transport. 

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The states have been, in the last 50 years, more red than blue. Anyone who doubted states leaned left before the last SA election got a big surprise when they gave Labor another chance. Putting more tax and spending power in the hands of a demonstrably more left-wing level of government will likely lead to more spending on – and better outcomes in – health and education.

If we had a lot of border towns, there would be big risks of distortion where states had different tax policies.  Luckily most Australian population centres are far from the borders. The Gold Coast (QLD) is the closest big town to a border, being 23km from Tweed Heads (NSW).  

This idea is the only really big game changer in the whole report. Every thing else is about levels of spending or ownership of entities. This one is about the fundamentals of our Commonwealth, and it is not a bad idea. Locating responsibility for expenditure and responsibility for taxation in the same level of government makes perfect sense. Of course commentators are opposed, and it will be, ahem, looming understatement, tricky to get off the ground.

2. Paid Parental Leave to clock out at incomes of $58,000, but keep the surcharge on the profits of big business. 

This week, Tony Abbott cut maximum wage matching for the PPL from $150,000 to $100,000. (I estimated this would impact the payments of around 5400 women.) The audit commission argues it should be far lower, at Average Weekly Earnings, or $57,460. But the tax introduced to pay for the scheme should be retained, it argues, and spent on child care.

No upper middle class welfare, and higher taxes on big business? It’s like Bob Brown himself wrote this part of the Commission’s report.

3.  Cutting a promised boost to Defence spending.

The Government, in its madness, has promised to boost defence spending to 2 per cent of GDP. Why 2 per cent? Not because that’s proven to be the level we need to keep the barbarians from the gate, but just because.

The Commission rightly argues we should choose our spending level based on strategic and fiscal need, not on easily memorable even prime numbers. (It then waters down the strategy-first argument by saying the government should prioritise: “reducing the staffing size of Defence headquarters in Canberra, including senior staff, to 1998 levels;”).Nevertheless, the government’s 2 per cent of GDP pledge is a shocker of an idea, and the Audit rightly sends it out on to the firing range where it belongs

4. Benchmarking the ABC.

Now, this one is a bit of a stretch. The government is clearly looking for opportunities to cut. But if you benchmark honestly, and compare the ABC to its peers, you’re going to find it hard to do anything but conclude they are very very frugal and represent a good return on investment.

This excellent analysis finds the ABC spends 14c per Australian per day. The BBC gets 39c per Briton per day. Canada’s public broadcaster also gets 14c a day, but it has advertisements. The ABC, is the runaway winner. The article adds that it is 4 per cent of the price of subscribing Foxtel.

The ABC gets $1.2 billion in revenue, which it uses to run 12 radio stations, a 24 hour news channel, two main channels, a kids station, an international station called Australia Network, abc news and opinion online, etc. Channel 7 has revenue of just over $1.2 billion, which it earns for running 7, 7Two and 7Mate. 

While the ABC pays its top stars up to $356,000, I have it on impeccable authority that ABC Melbourne journalists have to BYO teabags to work.

I cannot imagine how a benchmarking exercise would find anything other than great opportunities to invest in the ABC.

The Commission of Audit report contains some other ideas I regard as excellent, like cuts to industry assistance, better e-government and slashing the hell out of DFAT. It also contains ideas I oppose wholly, like restricting access to Medicare, and cutting the minimum wage.

The full set of Phase One recommendations is here. Use the comments section to let me know any other parts that catch your eye!

Debt, deficit, and political death by a thousand cuts

The Government’s latest budget update is part of the political plan but could also be its undoing.

The Mid-Year Economic and Fiscal Outlook’s shock projections of $667 billion in debt and deficits until 2023-24 lays the groundwork for the Commission of Audit.

The Commission of Audit is the government’s major economic ambition for its  first term and its job is to find ways for the government to save money. Mr Abbott has been promising it since March 2012.

Hockey and Abbott want the Commission to have the most receptive environment in which to publish its plans (the Interim report is due in January, the final report by the end of March).  So they need the intense sense of a budget emergency.

MYEFO “will show the Australian people the problem we’ve inherited, and the budget will deliver the solution,” Treasurer Hockey said in November.

Cuts a-coming.
Cuts a-coming.

Rudd tried reform on the tax side.  Disastrous. So this government is prioritising reform on the expenditure side. (The Government has promised a white paper on tax reform within two years – a softer pledge). From an economic perspective that is fair. But it raises political questions.

What is the last “cut” that is heralded as a major political reform? Howard strangled the dole payment down below some estimates of the poverty line, but that’s oddly omitted in his hagiography. Even right-wing economist Judith Sloan has argued the dole should now be raised.

When we list the economic reforms that have made Australia great we include microeconomic reform, floating the dollar, an inflation-targeting central bank and the GST.  Not cuts.

If the Abbott government first term economic reforms can mainly be labelled “cuts”, what will be its legacy? It needs to frame these cuts in a positive way. But that is not easy.

Business council chief executive Jenniffer Westacott has a suggestion. She called the Commission of Audit a “once-in-a-generation opportunity to fortify Australia’s budget foundations and set in train a much-needed reform agenda to keep our economy strong.”

Reform is hard enough to justify on its own. Using reform to justify cuts is going to be a very hard sell indeed. Ms Westacott is not a politician.

When the Commission of Audit presents a menu of reforms, the government will have to read the mood of the nation and of opinion leaders.

Will the government be able to identify which cuts use least political capital? When Rudd picked the eyes out of the Henry Review, he thought the public would support a tax on rich miners and was proved quite wrong.

Abbott has a massive parliamentary lead, but Newspoll shows his government lagging, 48-52. The recommendations of the Commission of Audit will be picked through with an eye to 2016.

The further behind in the polls the government is, the more it will tread softly. Bill Shorten’s mouth will be so tired of using the terms “cut” “slash” and “hack” that by 2016, it will probably go on strike.

Media-savvy?
Media-savvy?

If the Government is too selective with the reforms, it will face accusations of having no backbone, and lose some of the most strident support from its barrackers in the News Corp press.  Far better, the Government may think, to be seen as having the courage of convictions even if it means putting some of its vast parliamentary majority to the sword.

But that is a gamble on the reputation of the political right. Too much cutting could poison the Liberals’ reputation as a party that builds the nation.

Can the government create clamour for cuts? Only if the narrative from this Daily Telegraph story sticks in the public’s mind:

“Australian families to wear the pain of Labor’s massive debt bomb, Joe Hockey warns”

UPDATE: I now read that the Tele is Australia’s least trusted news source according to a new survey. Dire warnings indeed.